Markets
There was no compelling global trading theme yesterday. German ZEW expectations were stronger than expected but US NFIB small business confidence declined at the fastest pace since April. The election outcome and new corona restrictions outweighed positive vaccine news in US small businesses’ assessment. Mediocre US data continue to inspire the debate on fiscal support. Talks are ongoing but different proposals/views don’t provide common ground (e.g. the view from Senate Majority leader McConnell versus Mnuchin proposal). Still, US equities reversed initial softness supported by the prospect that the Pfizer vaccine would soon receive US approval. The S&P and the Nasdaq finished at a record close. The US yield curve flattened. The 2y yield rose by 1 bp, after a mediocre 3y auction. The 30y yield lost 1.7 bps. EMU bonds outperformed as investors await tomorrow’s ECB policy recalibration. German yields declined between -1.4 bps (2y) and 2.9 bps (10y). The dollar entered a short term holding pattern, confirming last week’s break of key levels, but without follow-through losses yet. The DXY regained a few ticks (close near 91.00). EUR/USD finished little changed at 1.2104. The Brexit saga dominated European headlines, but mainly showed in sterling trading, less in equites and bonds. EUR/GBP jumped up and down in the 0.91 big figure. Agreement on the implementation of the Northern Ireland protocol and the scrapping of some controversial clauses of the UK Internal market bill gave some hope, but no guarantee that ‘fundamental’ differences will be solved at today’s meeting between PM Johnson and EC von der Leyen. EUR/GBP closed the day marginally higher at 0.9063.
(Asian/global) markets resumed the by-default reflation tendency that dominates trading. Regional eco data were mixed. Japanese November machine orders jumped a spectacular 17.1% M/M. Chinese PPI ‘deflation’ slowed from -2.1% to -1.5%, but headline CPI was negative for the first time since 2009 (-0.5%); even as this was mainly due to pork prices. The inflation data give the PBOC room to keep a wait-and-see approach. The yuan (USD/CNY 6.5275) is holding near its recent top. US yields are trending up. The dollar struggles (DXY 90.75).
Today’s eco calendar is almost empty. The focus stays on upcoming events, including the ECB meeting, the high level Brexit talks and tomorrow’s EU summit. Will EU politicians solve the stand-off with Hungary and Poland on the ruleof- law condition for EU funds? EMU and US bond markets again diverged yesterday. The German 10y yield dropped below -0.6% intermediate support. We wouldn’t be surprised if EMU bond investors reassess positions after the ECB’s final easing, potentially leading to a bottoming out process (in yields). However, it’s too early to already play this card. The gradual uptrend in the US 10y yield remains intact. Will today’s 10y auction (and tomorrow’s 30y sale) be a catalyst to test the 0.98%/1.0% area? Sentiment on the US dollar remains fragile. Even EUR/USD hardly suffers from Brexit or from anticipation on ECB easing. The EUR/USD 1.2178 top remains within reach. EUR/GBP is at the mercy of Brexit headlines. We won’t be surprised if today’s talks would still lead to additional extra-time in the Brexit match. We for now we keep a wait-and-see approach on sterling.
News Headlines
The UK department of trade announced that it will remove tariffs imposed by the EU on $4bn of US goods as part of the Boeing-Airbus (state subvention) feud. The move is aimed at restoring trust with the US and to show that the UK is serious about reaching a negotiated trade outcome. The EU holds simultaneous talks with the US with EU trade commissioner Dombrovskis aiming to secure a deal by January 20. The US has duties in place on $7.5bn EU products.
Texas atternoy-general Paxton sued Wisconsin, Pennsylvania, Georgia and Michigan for unlawfully adapting presidential voting procedures during the Covid-19 pandemic. Their “illegitimate” results diluted Texas’s rightful voting power in the electoral college, according to Paxton’s complaint. Only the US Supreme Court can hear disputes between states.
